

NOTE 5		Investments

FIXED INCOME SECURITIES

The amortized cost, gross unrealized gains and losses and fair value of our fixed income securities as of December 31, 2018 and 2017 are shown below:



Details of fixed income investment securities by category as of December 31, 2018
Table	5.1a
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses ⁽¹⁾			Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	167,655	$	597	$	(1,076	)	$	167,176
Obligations of U.S. states and political subdivisions		1,701,826		29,259		(10,985		)	1,720,100
Corporate debt securities		2,439,173		2,103		(40,514		)	2,400,762
ABS		111,953		226		(146		)	112,033
RMBS		189,238		32		(10,309		)	178,961
CMBS		276,352		888		(9,580		)	267,660
CLOs		310,587		2		(5,294		)	305,295
Total fixed income securities		$	5,196,784	$	33,107	$	(77,904	)	$	5,151,987



Details of fixed income investment securities by category as of December 31, 2017
Table	5.1b
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses ⁽¹⁾			Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	179,850	$	274	$	(1,278	)	$	178,846
Obligations of U.S. states and political subdivisions		2,105,063		56,210		(8,749		)	2,152,524
Corporate debt securities		2,065,475		10,532		(9,169		)	2,066,838
ABS		4,925		—		(2		)	4,923
RMBS		189,153		60		(7,364		)	181,849
CMBS		301,014		1,204		(4,906		)	297,312
CLOs		100,798		304		(79		)	101,023
Total fixed income securities		$	4,946,278	$	68,584	$	(31,547	)	$	4,983,315


⁽¹⁾	There were no OTTI losses recorded in other comprehensive (loss) income as of December 31, 2018 and 2017.

We had $13.5 million and $13.6 million of investments at fair value on deposit with various states as of December 31, 2018 and 2017, respectively, due to regulatory requirements of those state insurance departments. In connection with our insurance and reinsurance activities, we are required to maintain assets in trusts for the benefit of contractual counterparties. The fair value of the investments on deposit in these trusts was $26.3 million and $7.7 million at December 31, 2018 and 2017, respectively.

Table 5.2 compares the amortized cost and fair values of fixed income securities, by contractual maturity, as of December 31, 2018. The analysis is based upon contractual maturity. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties. Because most mortgage and asset-backed securities provide for periodic payments throughout their lives, they are listed separately in the table.



Fixed income securities maturity schedule
Table	5.2
		December 31, 2018
(In thousands)		Amortized Cost		Fair Value
Due in one year or less		$	484,485	$	482,919
Due after one year through five years		1,652,638		1,632,494
Due after five years through ten years		1,011,237		996,335
Due after ten years		1,160,294		1,176,290
		4,308,654		4,288,038

ABS		111,953		112,033
RMBS		189,238		178,961
CMBS		276,352		267,660
CLOs		310,587		305,295
Total as of December 31, 2018		$	5,196,784	$	5,151,987

Proceeds from the sale of fixed income securities classified as available-for-sale were $365.6 million, $246.9 million, and $728.0 million during the years ended December 31, 2018, 2017, and 2016, respectively. Gross gains of $0.7 million, $1.6 million, and $11.9 million and gross losses of $3.8 million, $1.4 million and $3.0 million were realized on those sales during the years ended December 31, 2018, 2017, and 2016, respectively.

For the year ended December 31, 2018, we recorded $1.8 million of OTTI losses in earnings. For the years ended December 31, 2017 and 2016, there were no OTTI losses in earnings.

EQUITY SECURITIES

The cost and fair value of investments in equity securities as of December 31, 2018 and December 31, 2017 are showing in tables 5.3a and 5.3b below. As described in Note 3 - "Significant Accounting Pronouncements," under updated guidance regarding the "Recognition and Measurement of Financial Assets and Financial Liabilities" which became effective on January 1, 2018, the amount of our FHLB stock investment has been reclassified and presented in "Other invested assets" on our consolidated balance sheet as of December 31, 2018.

Details of equity investment securities as of December 31, 2018

Table

5.3a

(In thousands)

Cost

Gross gains

Gross losses

Fair Value

Equity securities

3,993

(72

)

3,932

Details of equity investment securities as of December 31, 2017

Table

5.3b

(In thousands)

Cost

Gross gains

Gross losses

Fair Value

Equity securities

7,223

(16

)

7,246

Proceeds from the sale of equity securities were $4.9 million during the year ended December 31, 2018. Gross gains of $3.7 million were realized on those sales during the year ended December 31, 2018. There were no sales of equity securities in 2017 or 2016. For the year ended December 31, 2018, we recognized $84 thousand of net losses on equity securities still held as of December 31, 2018, which are reported in Net realized investment (losses) gains on our consolidated statements of operations.

OTHER INVESTED ASSETS

Other invested assets include an investment in FHLB stock that is carried at cost, which due to its nature approximates fair value. Ownership of FHLB stock provides access to a secured lending facility, and our current FHLB Advance amount is secured by eligible collateral whose fair value is maintained at a minimum of 102% of the outstanding principal balance of the FHLB Advance. As of December 31, 2018, that collateral consisted of fixed income securities included in our total investment portfolio, and cash and cash equivalents, with a total fair value of $168.9 million.

UNREALIZED INVESTMENT LOSSES

Tables 5.4a and 5.4b below summarize, for all available-for-sale investments in an unrealized loss position as of December 31, 2018 and 2017, the aggregate fair value and gross unrealized losses by the length of time those securities have been continuously in an unrealized loss position. Gross unrealized losses on our available-for-sale investments amounted to $78 million and $32 million as of December 31, 2018 and 2017, respectively. The fair value amounts reported in tables 5.4a and 5.4b below are estimated using the process described in Note 6 - "Fair Value Measurements" to these consolidated financial statements.



Unrealized loss aging for securities by type and length of time as of December 31, 2018
Table	5.4a
		Less Than 12 Months					12 Months or Greater					Total
(In thousands)		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	23,710	$	(15	)	$	69,146	$	(1,061	)	$	92,856	$	(1,076	)
Obligations of U.S. states and political subdivisions		316,655		(3,875		)	358,086		(7,110		)	674,741		(10,985		)
Corporate debt securities		1,272,279		(18,130		)	785,627		(22,384		)	2,057,906		(40,514		)
ABS		51,324		(146		)	—		—			51,324		(146		)
RMBS		24		—			178,573		(10,309		)	178,597		(10,309		)
CMBS		65,704		(1,060		)	163,272		(8,520		)	228,976		(9,580		)
CLOs		296,497		(5,294		)	—		—			296,497		(5,294		)
Total		$	2,026,193	$	(28,520	)	$	1,554,704	$	(49,384	)	$	3,580,897	$	(77,904	)



Unrealized loss aging for securities by type and length of time as of December 31, 2017
Table	5.4b
		Less Than 12 Months					12 Months or Greater					Total
(In thousands)		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	144,042	$	(796	)	$	31,196	$	(482	)	$	175,238	$	(1,278	)
Obligations of U.S. states and political subdivisions		505,311		(3,624		)	211,684		(5,125		)	716,995		(8,749		)
Corporate debt securities		932,350		(4,288		)	200,716		(4,881		)	1,133,066		(9,169		)
ABS		4,923		(2		)	—		—			4,923		(2		)
RMBS		14,979		(280		)	166,329		(7,084		)	181,308		(7,364		)
CMBS		51,096		(358		)	138,769		(4,548		)	189,865		(4,906		)
CLOs		14,243		(7		)	3,568		(72		)	17,811		(79		)
Equity securities		226		(2		)	431		(14		)	657		(16		)
Total		$	1,667,170	$	(9,357	)	$	752,693	$	(22,206	)	$	2,419,863	$	(31,563	)

For those securities in an unrealized loss position, the length of time the securities were in such a position, is measured by their month-end fair values. The unrealized losses in all categories of our investments as of December 31, 2018 and 2017 were primarily caused by changes in interest rates between the time of purchase and the respective year end. There were 721 and 586 securities in an unrealized loss position as of December 31, 2018 and 2017, respectively. As of December 31, 2018, the fair value as a percent of amortized cost of the securities in an unrealized loss position was 98% and approximately 8% of the securities in an unrealized loss position were backed by the U.S. Government.

The source of net investment income is shown in table 5.5 below.



Net investment income
Table	5.5
(In thousands)		2018			2017			2016
Fixed income securities		$	140,539		$	122,105		$	112,513
Equity securities		228			206			182
Cash equivalents		3,423			1,447			754
Other		816			620			433
Investment income		145,006			124,378			113,882
Investment expenses		(3,675		)	(3,507		)	(3,216		)
Net investment income		$	141,331		$	120,871		$	110,666

The change in unrealized gains (losses) of investments is shown in table 5.6 below.



Change in unrealized gains (losses)
Table	5.6
(In thousands)		2018			2017			2016
Fixed income securities		$	(81,834	)	$	69,026		$	(5,403	)
Equity securities		—			39			(36		)
Other		—			(13		)	14
Change in unrealized gains/losses		$	(81,834	)	$	69,052		$	(5,425	)